Book :Business Analytics 6th edition (data analysisand decision making)
By s. Chirstian albright and wayne. L . w
A
If your company makes a particular decision in the face ofuncertainty, you estimate that it will either gain $10,000, gain$1000, or lose $5000, with probabilities 0.40, 0.30, and 0.30,respectively. You (correctly) calculate the EMV as $2800. However,you distrust the use of this EMV for decision-making purposes.After all, you reason that you will never receive $2800; you willreceive $10,000, $1000, or lose $5000. Discuss this reasoning.
B
In the previous question, suppose you have the option ofreceiving a check for $2700 instead of making the risky decisiondescribed. Would you make the risky decision, where you could lose$5000, or would you take the sure $2700? What would influence yourdecision?
C
A potentially huge hurricane is forming in the Caribbean, andthere is some chance that it might make a direct hit on Hilton HeadIsland, South Carolina, where you are in charge of emergencypreparedness. You have made plans for evacuating everyone from theisland, but such an evacuation is obviously costly and upsettingfor all involved, so the decision to evacuate shouldn’t be madelightly. Discuss how you would make such a decision. Is EMV arelevant concept in this situation? How would you evaluate theconsequences of uncertain outcomes
